Income Taxes

12 Months Ended

Mar. 27, 2022

Income Taxes

Income Taxes

Note 13. Income Taxes

A reconciliation of the difference between the provision for income taxes computed at statutory rates and the provision for income taxes from continuing operations provided in the Consolidated Statements of Income (Loss) is as follows:

	2022		2021		2020
Statutory federal rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	0.7		3.4		1.8
Non-deductible expenses	(2.0)		(1.2)		(0.7)
Change in valuation allowance	5.2		(7.6)		(2.9)
Rate change for loss carrybacks	0.0		6.2		12.5
Other	(0.4)		(0.7)		0.7
Effective rate	24.5	%	21.1	%	32.4	%

The provision for income taxes from continuing operations was comprised of the following:

	2022		2021		2020
Federal:    Current	$	(1,229,200)	$	(4,263,700)	$	(4,008,000)
Deferred		126,500		(48,200)		(2,642,800)
State:        Current		38,500		16,700		(411,000)
Deferred		(7,100)		450,700		(413,000)
Benefit from income taxes	$	(1,071,300)	$	(3,844,500)	$	(7,474,800)

Total net deferred tax assets (liabilities) as of March 27, 2022 and March 28, 2021, and the sources of the differences between financial accounting and tax basis of the Company's assets and liabilities which give rise to the deferred tax assets, are as follows:

	2022		2021
Deferred tax assets:
Deferred compensation	$	202,000	$	163,600
Accrued vacation		145,700		362,600
Deferred rent		2,100,400		2,638,100
Allowance for doubtful accounts		246,200		357,300
Inventory reserves		1,042,800		766,300
Sales tax reserves		127,600		104,500
Sales return assets		125,300		451,400
Net operating loss		1,969,800		518,500
Business interest limitation carryforward		555,300		383,800
Other assets		1,486,300		925,900
		8,001,400		6,672,000
Valuation allowance		(2,543,600)		(2,866,800)
Total deferred tax assets		5,457,800		3,805,200
Deferred tax liabilities:
Depreciation and amortization		(2,784,600)		(214,600)
Sales return liabilities		(90,000)		(224,100)
Lease right of use		(2,035,500)		(2,589,600)
Prepaid expenses and other liabilities		(693,300)		(803,400)
Total deferred tax liabilities		(5,603,400)		(3,831,700)
Net deferred tax (liability) assets	$	(145,600)	$	(26,500)

The valuation allowance recorded by the Company as of March 27, 2022 and March 28, 2021 resulted from the uncertainties of the future realization of federal and state deferred tax assets. The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be realized, and will reduce the valuation allowance appropriately as such time when it is determined that the “more likely than not” criteria is satisfied.

As of March 27, 2022, the Company had net operating loss carryforwards of $94,258,300 which will generally begin to expire in fiscal year 2030 through fiscal year 2040. Federal and certain state net operating loss carryovers do not expire.  

As of March 27, 2022 and March 28, 2021, the Company had no unrecognized tax benefits.

The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as part of the provision for income taxes. The total amount of interest and penalties related to tax uncertainties recognized in the Consolidated Statements of Income (Loss) was $0 for fiscal years 2022, 2021 and 2020. The cumulative amount included in the Consolidated Balance Sheets as of March 27, 2022 and March 28, 2021 was $0.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law making several changes to the Internal Revenue Code. The changes include but are not limited to: increasing the limitation on the amount of deductible business interest expense, allowing companies to carryback certain net operating losses to the preceding five years, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income. These special provisions were applicable to fiscal years 2020 and 2021 while net operating losses generated in fiscal 2022 cannot be carried back.

The Company files income tax returns in U.S. federal, state and local jurisdictions. Tax returns for fiscal years 2016 through 2022 remain open to examination by U.S. federal, state and local tax authorities. Federal and state net operating losses generated to date are subject to adjustment for state income tax purposes.